More investors call for 50% free float minimum on FTSE

By: Jonathan Boyd | 19 Dec 2011

Some of the UK’s biggest investors have added their voice to calls for FTSE listed companies to have at least half their shares traded on the market.

The FTSE group has already warned companies listed in its UK indices, such as the FTSE 100 and FTSE 250, that it is looking for a minimum 25% free float ratio. This is likely to be particularly demanding in the key natural resources and mining sectors. The past few years have seen a number of the world’s biggest listings from these sectors take place in London, but with investors able to buy just a small proportion of these companies because of the low proportion of shares actually put to trading in the market.

There are regulatory and other concerns about the effects on minority shareholders’ interests if free floats are as low as 10-20%.

The UK’s second biggest pension fund, the Universities Superannuation Scheme, Railpen, the Merseyside pension fund, the Environment Agency pension fund, Royal London Asset Management and Aerion, have subsequently called for the minimum ratio to be set at double that proposed by FTSE – 50% instead of 25%.

They argue that only such a requirement can ensure minority investor interests are taken into consideration on corporate matters – such as remuneration – and is a fairer requirement because of the ongoing scarecity of capital globally. Those who give their capital to listed firms should, in short, be getting a better deal as investors.

Ben Levenstein, head of UK equities at USS, said: “Investor capital must not be taken for granted. In return for offering our capital, we must know our interests are protected. A higher free float will help provide that protection. Unless these concerns are addressed, risks to investors will rise and capital will naturally become more expensive.”

The rules on free float requirements have been a grey area; although rules may require firms incorporated outside the UK seeking a listing to offer a 50% free float, a number of firms that have elected to incorporate in the UK in recent years have offered much less. However, the regulatory authority responsible, the UK Listing Authority, has itself allowed certain firms to avoid the 25% minimum free float for so-called primary listings. Thus a number of FTSE 100 firms, incorporated and listed in the UK but with operations located wholly or mainly in other jurisdictions, have been able to tap the London capital market without offering minority investors any significant portion of the business.